WORKERS who think that their pensions are secure because
the government guarantees them, and that their 401(k) money is safe once it
goes to an investment house, may want to follow closely a case in Portland,
Ore., that has cost 100,000 people some major chunks of their retirement
income.

Late last month, the
United States Labor Department, the Securities and Exchange Commission and
Portland members of the Oregon Laborers Union, part of the A.F.L.-C.I.O., all
filed civil suits against the trustees of the union's retirement funds, seeking
to recover $225 million in losses.

The government says in its
filings that the losses resulted from what it calls a "Ponzi-like
scheme," where fresh investments were used to disguise earlier shortfalls.
Government officials say they are continuing to investigate the losses in
accounts that until recently were thought to be worth about $1 billion.

Pension experts say the
case illustrates the vulnerability of retirement funds. But a bill up for a
vote in Congress as early as tomorrow would curtail the mailing of reports and
make it harder to discover schemes, some union members say. "We counted
heavily on those disclosures," said Larry Miller, one of the two workers
in whose name 15,000 union members have brought their suit.

Sponsors of the bill say
it would allow Americans to save far more with the tax advantages of Individual
Retirement Accounts and 401(k) accounts. One of the sponsors, Senator William
V. Roth Jr., a Delaware Republican, said that most workers throw out retirement
fund reports and called them "a wasted administrative effort that can be
very costly to companies." But in light of the Portland case, Mr. Roth
said he would seek to change his bill to accommodate workers' concerns.

The losses in the Oregon
retirement funds are likely to have an especially great impact on the Portland
union members and retirees, though nobody can yet say just how large. Manual
laborers, who do the heavy lifting at construction sites and the like,
typically retire early. They are therefore all the more dependent on their
401(k)'s.

The government's Pension
Benefit Guaranty Corporation insures traditional pensions, but not 401(k)'s,
which constituted about half the missing $225 million.

"No one knows yet how
much we will lose," said Mr. Miller, 53, who had hoped to retire in two
years, after three decades of manual labor. "Our families are dependent on
this money and this case is causing a lot of havoc, a lot of heartache,"
he said. "Our retirees are in near-panic situation, but we had to get this
out in the open."

Karen Ferguson, director
of the Pension Rights Center, a nonprofit group in Washington, said losses in
the retirement accounts are likely to be significant. "Because of the way
federal pension guarantees work, and because laborers tend to retire early
because they cannot work until they are 65, the workers stand to lose a
lot," she said.

Mr. Miller said workers
began to suspect something was amiss two years ago. The plans' summary annual
reports, one-page documents that by law must be sent to every worker and
retiree each year, contained a $1.8 million discrepancy, he said.

Union members persuaded
Labor Department investigators to ask some questions. The investigators focused
on a Portland money management firm, Capital Consultants, and its founder,
Jeffrey Grayson, 58, both having a long history of conduct that has drawn the
attention of regulators.

In 1976, the S.E.C.
briefly suspended Mr. Grayson and two subordinates for investing $280,000 of
retirement funds in a mortgage certificate that turned out to be worthless.
Since 1992, Capital Consultants has charged some pension funds 3 percent in
annual fees, Labor Department records show. A 1 percent fee is not unusual, and
some large pension funds incur costs of just one-twentieth of 1 percent.

Mr. Grayson still enjoyed
the confidence of trustees of various pension plans, some of whom, according to
records of past administrative cases, also received valuable gifts from Mr.
Grayson and his associates, including hunting trips and visits to Disney theme
parks. The Portland case, however, has raised no such allegations.

In this instance, Mr.
Grayson gave a multiyear contract to a consulting company owned by John D.
Abbott – the business agent for all Laborers Union locals in Oregon,
southern Idaho and Wyoming -- and his wife, Pamela. The Oregonian, in Portland,
said the contract was worth $805,000, and a potential total of nearly $2
million if renewed.

Mr. Abbott, who has also
been a retirement fund trustee, could not be reached, and Capital Consultants
refused to comment. But in an earlier statement, Capital Consultants said the
contract with Mr. Abbott's company "was approved by legal counsel and is
in compliance with applicable laws and regulations."

Confirming that Mr.
Abbott's role was to win business for Capital Consultants, the firm said,
"It is common in the industry for investment advisory firms, such as
Capital, to retain individuals, including former pension trustees or union
officials such as Mr. Abbott, for this purpose."

MR. GRAYSON, meanwhile,
made curious and sometimes disastrous investments with the retirement funds.
Among these was a $6 million investment with Title Loans of America, a Georgia
company that lends to individuals with low credit ratings at extremely high
interest rates. The loans are secured by the titles to the borrowers' cars.

Title Loans of America is
owned by two trusts whose sole beneficiary is Alvin I. Malnik, a Miami lawyer
whom the New Jersey Casino Control Commission found in 1980 and 1992 to be
"a person of unsuitable character" to have any role in the industry.
In 1980, the commission found Mr. Malnik to be so intimately associated with
organized crime figures that it denied licenses to two businessmen who had done
deals with him.

Mr. Malnik has in the past
denied that he is involved with organized crime. Neither he nor the chief executive
of his company, Robert Reich, responded to requests for an interview. The
trustees, through their lawyer, Robert B. Miller of Portland, all declined
comment, but on Friday they filed their own suit against Capital Consultants,
Mr. Grayson and others, seeking recovery of lost funds.

It was another, larger
investment, however, that according to the S.E.C. set off what it called the
Ponzi scheme in late 1998. Capital Consultants invested $160 million, through a
company called Wilshire Credit, in a portfolio of loans that carried high
interest rates because, here, too, borrowers had poor credit histories.

The Labor Department and
the S.E.C. say that in late 1998, several months after the deal closed, Capital
Consultants realized that the loan portfolio was worth only about $6

million, having lost at
least 96 percent of its value.

Rather than tell their
clients the money was lost, the S.E.C.'s lawsuit said, Capital Consulting, Mr.
Grayson and his son, Barclay, "continued to report to their clients that
the loan had a value of $160 million." The suit said the Graysons and
their firm "continued to sell clients participation interests in the loans
at full value."

They poured another $71
million of retirement funds into a scheme to create the appearance that
interest payments were being made on the loan portfolio, the S.E.C. suit said.

About 100,000 workers,
retirees and dependents will be affected, said Dan Feinberg, a pension lawyer
in Oakland, Calif., who filed the union members' suit against the trustees.

About half the missing
money in Portland was in 401(k) plans, he said. The only chance workers and
retirees have of recovering more than a small fraction of their lost 401(k)
savings is from the trustees' liability insurance, Mr. Feinberg said.